This is a guest post. The views expressed in this article are solely those of the blogger and do not represent positions of IEEE Spectrum or the IEEE.
People are buying and trading digital coins at a frenetic pace in developing countries. With cryptocurrencies, people can conduct business, send money across borders, avoid regulation and taxation, and legitimize their informal economic activity—all without going through failed central banking systems.
In these markets, cryptocurrencies are increasingly used for cheap, fast, and private transfers of value at the last mile. In recent months, their uptake has accelerated significantly in places with unstable currencies, such as Venezuela, Nigeria, and Zimbabwe. In fact, in Zimbabwe, a country notorious for hyperinflation, soaring demand for cash substitutes recently pushed the price of Bitcoin over US $10,000.
But cryptocurrencies are destined for far more than just currency hedging, with potential applications across the global economy. In last-mile settings, the primary value of digital coins appears not to be stored, but transactive.
Surveys recently conducted by the Asian Development Bank suggest that in remote communities, digital accounts are more often used for peer-to-peer payments than as a speculative investment or to stash savings. Their value as a secure, low-cost medium of exchange has proven especially useful as a vehicle to provide access to clean energy to the 1.1 billion people who live beyond the grid.
This matters because nearly 2 billion adults worldwide do not have access to a basic digital transactive account through which they can participate in the formal economy, let alone affordable financial products and services like payments, savings, credit, or insurance. And 1.1 billion [pdf] do not have access to electricity in order to power digital financial tools (such as mobile payment accounts) in the first place.
Cryptocurrencies, along with blockchains—their enabling technology—could solve both problems. They can efficiently manage peer-to-peer energy trading on a mini-grid or network of solar home systems, or one day form the basis of a local energy cooperative financed through “crypto-securities” [pdf]. For mini-grids, smart contracts [pdf] can coordinate automatic payments when customers hit usage limits or the end of their billing cycle.
Together with cross-border payment processing services like Coinify or BitPesa, digital coins could let customers make low-cost verified payments for pay-as-you-go solar home systems, which are small lease-to-own solar kits that typically include phone chargers, lightbulbs, fans, or TVs. Customers could build a credit history by making timely payments. And the immutable standardized ledgers used for these services could let insurers bundle solar home system portfolios based on customers’ creditworthiness and risk profiles, making it easier for consumers to buy insurance.
To pay for such services, many customers would turn to their mobile phones. Mobile phone penetration is already staggeringly high in last-mile markets, and blockchain technology can take mobile payments a step further by applying them directly to real-time transactive energy trading. This has already been done by LO3 Energy’s Ethereum-based Brooklyn Microgrid project and could be easily applied to remote, smart-metered nano-grid networks, such as those that ME SolShare is installing in Bangladesh.
All of these advantages could provide new ways to finance off-grid energy. For example, the East African startup M-PAYG is already using cryptocurrencies for pay-as-you-go systems based on a business model that incorporates other value-added services like e-banking, insurance, and farming and weather data. The Sun Exchange is an online marketplace that solicits crowdfunding commitments for individual solar cells in PV projects in sub-Saharan Africa, which pays funders back using Bitcoin as the cells produce energy.
Besides serving customers, blockchain technology can help utilities set up dynamic pricing and secure electronic billing between a grid-tied mini-grid and the distribution company. In turn, that setup could lower transaction costs, put downward pressure on electricity rates during peak demand times, and reduce losses from theft.
In India, Power Ledger [pdf], an Australian startup seeking to create a blockchain-based renewable energy network, is partnering with Tech Mahindra, a division of the Indian conglomerate, to trial energy trading on “islandable” micro-grids. Power Ledger has issued 'POWR' tokens to create a platform that will let customers trade energy and encourages distributed ownership of its trading network. Energo Labs, a Shanghai-based startup, will also use blockchain technology to let consumers trade energy across remote micro-grids in the Philippines.
Many of these applications will be slow to catch on given the nascence of both rural mini-grid markets and blockchain technology, the cost of smart meters, the regulatory uncertainty, and social barriers to understanding blockchain technology and technical energy trading schemes. But for customers beyond the grid’s edge, the fundamental value of this disruptive technology is as a low-cost, secured medium of exchange that can empower access to energy at a dizzying pace.
About the Author
Benjamin Attia leads GTM Research’s new focus on the energy transformation occurring in off-grid energy access as well as coverage of grid-tied solar markets in Africa and developing Asia. Follow him on Twitter: @solarbenattia